Question

Your uncle who owns a furniture store asks your advice. Should he put the new furniture on sale at 10 % off, or should he raise prices by 10%? Which strategy will increase his total revenue? Why?

Answer 1

Total Revenue = Price * Quantity

By putting furniture on sale at 10%, there is a chance that more quantity is purchased at lower prices. This increases the total sales but to ensure total revenue rises, the income from increase in revenue is more than decrease in price. While, if he raises prices by 10%, the quantity sold gets affected negatively. So, the revenue decreasing from price decrease must be less than the total revenue rise.

Since the furniture is new, the owner can raise price since product is unique and so demand will still be more even with price rise. Later, the other method can be used to sell the balance stock.

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